Mexico Weighs Opening Up Wider to Foreign Property

 LAURENCE ILIFF  
July 9, 2013
Wall Street Journal

CANCÚN, Mexico—Mexico is poised to lift century-old restrictions on foreign ownership of property along its coasts and borders, a move real-estate developers believe could boost the nation's vacation-home market.

 

Mexico currently prohibits foreign ownership of land within 50 kilometers (31 miles) of the coast or 100 kilometers of an international border. The limits were written into Mexico's 1917 constitution because of worries about U.S. expansionary ambitions at the time. Mexico lost about half its territory to the U.S. in the mid-1800s after the annexation of Texas and the Mexican-American war. An exception was created in the 1970s to allow foreigners to acquire property through a special trust in partnership with a bank, a time-consuming and complicated process that many potential buyers find unappealing.

But now, Mexican real-estate brokers and developers are backing a constitutional amendment that would remove those prohibitions, though only for residential properties. The amendment—sponsored both by the Institutional Revolutionary Party and the National Action Party—recently passed the lower house and now is in the Senate.

Leftist legislators opposed to the move say the constitutional change amounts to a selling out of sensitive lands to foreign interests and have vowed to protest the move. But the leaders of the two main parties say they have the votes to get it signed into law.

Miguel Angel Lemus, president of the development and marketing firm Lemmus Inver Mexico Real Estate, says the constitutional change now making its way through Congress is more than a little overdue. "It's no time to be concerned about an invasion by the shorelines," Mr. Lemus said. "It's time to make money by the shorelines. We're going to have a boom with that."

 

For developers such as Mr. Lemus, there is a lot at stake. The company and its partners are finishing two large beachfront resorts: the 225-unit Be Tower condos in Puerto Cancún on the Caribbean Sea, which are priced from $180,000 to above $1 million; and the Peninsula resort condos in Nuevo Vallarta on the Pacific, which will include 240 units priced from $225,000 to $3 million.

Currently, foreigners can buy residential property not along a coast or border in the same way Mexican nationals can, receiving deeds in their names. But to buy in the restricted zone that includes popular beach resorts, foreigners must apply for special land trusts, or fideicomisos, that allow foreigners to partner with banks to exercise property rights. The trusts last for 50 years and are renewable.

Some lawmakers note that, in areas where the fideicomisos aren't required, including the central Mexican town of San Miguel de Allende, the economy is thriving thanks to retiring Americans, Canadians and other foreigners.

But the restrictions on foreign purchases have been a drag on development in Mexican beach-resort areas because many buyers find the bank-trust bureaucracy frustrating.

 

Michelle Holguin, a library media specialist in St. Helena, Calif., who bought beach property at Bucerías north of Puerto Vallarta, said going through the bank-trust process was more complicated than expected.

"There were so many obstacles in getting title that we wondered if we'd ever have it," she wrote in an email. "Each time the government would change, the rules would change. There were hints here and there that we should be 'greasing the wheel,' but we never did." Ms. Holguin said she welcomes the opportunity to own her property outright.

Salvador Romero Domínguez, the commercial director for Fonatur, the government agency that builds much of the nation's resort infrastructure, from Los Cabos in the west to Cancún in the east, says allowing outright ownership by foreigners is part of a greater push by the federal government that took office Dec. 1 under President Enrique Peña Nieto to develop the tourism market.

A weak Mexican peso compared with the U.S. dollar and other currencies makes the country attractive to foreigners, whether to vacation or to buy a second home, Mr. Romero said in an interview: "A crisis creates opportunity."

 

Mr. Romero said the recent global slowdown set back some of Fonatur's work under the previous administration, including at Litibú, a master-planned community north of Puerto Vallarta in an area dubbed the Riviera Nayarit. Most of the investors in the project were from Spain, and they suspended construction plans as financing dried up with the European economic crisis.

Now, he says, the Mexican export development bank Bancomext has stepped in to help a Spanish firm finance a stalled Litibú hotel, which is scheduled to open later in the year and drive construction on other parts of the development.

Fonatur is planning another Riviera Nayarit development and is also more aggressively promoting older projects in Huatulco on the Pacific, and Loreto in Baja California Sur, which haven't developed as quickly as its Los Cabos project, in part because of limited airline connections.

An improving image of Mexico and the recovery of the U.S. should bring back foreign buyers, especially at current prices, said Andrés Rossetto, managing director of the Punta Mita resort in Nayarit. "When the U.S. economy improves, there is going to be a surge here, because people are getting older and they are looking for a place where they can buy for $250,000 or $350,000," he said.

Canada also is a major market, developers say.

 

Michael Neyedli, 65 years old, and his wife, Victoria, 69, are looking for a place to retire from Vancouver, Canada, and have bought fractional ownership in a development under construction in Nayarit. The couple, which also has looked at Panama, said they may eventually become permanent residents of Mexico. "We've been thinking about retiring abroad and we love it here," said Victoria during a recent trip to Puerto Vallarta.

While lifting restrictions on foreign ownership is likely to help attract some American buyers, Mexico still has to deal with the perception the country is unsafe.

Jay West, a broker with U.S.-based real-estate firm Windermere in Los Cabos, said the constitutional change along with Mexico's image as a place where safety is improving should give a shot in the arm to his business. "Will it go up by 20%?" he said. "I hope so."

Two new studies—one conducted by the government and another by a private  group—show the murder rate is falling in Mexico, although some areas along the border and the Acapulco area continue to experience high levels of violence.